International Banking System

Overview

11th century Italy, center of European trade
Multiple currencies in circulation led to the need for exchange
"Bank" derived from "banco" (Italian for bench) due to merchants exchanging currencies on benches
Emergence of credit and cashless payments
Networks of banks spread across Europe

Primarily involved in risk management
Process:
- Banks store depositor's money, pay interest
- Lend out money at higher interest rates
- Vital for economic growth by providing resources to individuals and industries
Additional Income Sources:
- Saving deposits
- Credit card business
- Currency trading
- Custodian business
- Cash management services

Shift from long-term financial products to high-risk short-term gains
Financial boom led to risky financial constructs and trading
2008 Financial Crisis:
- Banks like Lehman Brothers took excessive risks
- Housing market crash led to a global banking crisis
- Governments enacted bailouts to prevent bank bankruptcies
Implementation of some new regulations; banking lobby blocked others

New Investment Banks:
- Charge annual fees instead of sales commissions
- Aligned with client interests
Credit Unions:
- Cooperative initiatives focusing on shared value
- Aim to support members in personal and business ventures
- Democratic structure with member-elected boards
- Generally more resilient during financial crises
Crowdfunding:
- Platforms like Kickstarter and Indiegogo
- Loans from small investors, reducing the need for banks
- Widely spreads risk among investors
Micro Credits:
- Small loans primarily in developing countries
- Assists in poverty alleviation and business startups
- Evolved into a multi-billion dollar industry